When you have your heart set on travelling to an exotic location or you are desperate to go backpacking around the Far East, borrowing the money to make your dreams a reality might seem like an excellent idea. However, taking out a loan to pay for a vacation of a lifetime is not always the best way to achieve your goal.
Do You Need a Loan?
Instead of borrowing the money to pay for your trip, check out whether you can raid a savings account instead. Some long-term savings accounts charge fees in the form of lost interest if you access the funds early, but it will still be cheaper than taking out a loan.
Alternatively, ask a family member if they can stump up the cash interest free. If you can make a compelling argument on why you really need to go on vacation, they might be willing to help you out. If you don’t ask, you don’t get!
Can You Afford the Repayments?
It shouldn’t be too difficult to repay a travel loan unless you are plotting to travel First Class all the way (and rack up some huge expenses as a result), but before you even consider borrowing money to pay for the trip, think about whether you can make the repayments on a loan. And if money is really tight and you can barely afford to buy a tin of baked beans, the answer is probably no.
Check Your Credit Score
You need to have a good credit score in order to be considered for a loan or credit card, so check your credit score before you make any loan applications. Hopefully it’s pretty good, but if you discover your credit score is not so good, be prepared to pay a higher rate of interest on your loan. Or, wait a while and work at repairing your credit score.
Personal Loan or Credit Card Borrowing
The two main ways to borrow the money to pay for a dream vacation are to pay for everything on a credit card or take out a travel loan from a loan company such as the money hub. Both have their advantages and disadvantages, but credit cards are more flexible and may offer extra perks such as travel insurance.
Interest rates vary enormously between different products. As we have already mentioned, the lower your credit score, the more interest you will be charged when borrowing money. However, it is worth shopping around when looking at credit cards and travel loans to find the best product. Fixed rate loans are useful if you want the certainty of fixed repayments whereas with a variable rate, repayments will fall if the interest rate drops.
Never take out a loan unless you absolutely can’t find a better way of finding the funds. Should you fail to make the repayments for any reason, your credit score will be damaged and it will cast a shadow over many other areas of your life, particularly if you want a mortgage in the future.